EthCC 2: Xavier Lavayssiere

hello welcome back so I'm glad you're already all waking up after this short pose so the purpose of today I'm going to try to take a broader view of what we have been discussing so far about security tokens so first a few words about myself so my name is Xavier Lavoisier I studied computer science and law which is suited for the topic of the day and currently I'm doing three kind of activities one year think-tank about low-end dog Shane and we met last weekend I'm gonna talk a bit later about that another part is I do research about the regulatory aspect of blockchain and the last bit is a lot of training which is always a good fit for also be humble to being able to understand bit better how that works so the first point I would like to make is why are we here so we all know they all started in 2008 and with a specific idea in mind to create a PHP cash system that will be decentralized and thus separated from any institution I feel like the current if your ecosystem hasn't defined yet what it is purpose exactly and we are kind of stuck in between this vision of creating a fully decentralized system and trying to mind the gap with the rest of the slighty so the first view we can we first wretchedly we could have on that would be to enhance and expand the the system as it was designed for Bitcoin so trying to add several feature on it for instance a better policy for monetary policy for the insurance chickens orbital technology I don't feel like so far the ether maker system has a provable better solution to all of the problem that were raised ten years ago the X on the expansion side of thing on the other side I feel like there has been a lot of tinkering and ideas on like how we could slowly move from just being a cash and some tokens and having this token having a bit more usefulness we have the arbitration experiments we have the table several tokens and all that the general idea is that we were talking about a bridge this morning I feel like we have still the two side of the bridge and we haven't built a bridge on the one side we have the ecosystem that's trying to build this fully decentralized system on the other side you have the rest of the society you have users that have already user experience habits you have institutions that have expertise and and people that know specific topics and also user that that trust some some institutions and and everybody is on the other side of the bridge we are on another one and trying to build to mind a gap so one way to to look at that is if we look exactly at what is a legal person so a legal person is a concept an abstraction this design with a specific purpose one is the legal person itself has an identity so everybody that interact with the legal person recognize this identity for different kind of activities and actions and another part is that legal person holds assets itself so it owns a certain number of buildings of of financial assets the last part is having also the liabilities and a lot of the ecosystem is trying to rebuild this kind of concept of we're going to create a new decent right person but we are first to understand exactly what's its its purpose and the the anchoring of legal person in the state is not so much a question of the law of the state but just a way for the rest of society to recognize that now there is this intermediary it is this legal person that are gonna be behaved as also a shield for shareholders for employees and for customers because if you have a claim of a company you you have better chances to get back your claim if they have large assets unless if you're contracting with just an individual person so for every participant in interacting with this legal person the fact that he it has a bigger surface it makes it easier for you and more comfortable so then from there you have two roads we could look at it from the EOC step one is to try to create something that works like a legal person and try to have it implement all the feature of this legal person that's all the movement of the D arrows and I feel like in this process we are it's like not not using a software framework like we are rebuilding and recreating and rediscovering all the rules that you need once you have created this legal person to make it work you need to have a way to assess the claim you need to have a governance process that allow to know for instance at which point the DA is engaged to toward a particular third person you need all this process to be redesigned another approach of that is either to build everything all and to just try to anchor this deal into a specific jurisdiction and some of the yellows I've been working on that I'm trying to be recognized in a specific country I feel it's a bit the opposite of the initial intention if the initial intention was to build of full new system why just in the end just being shopping and just choosing opportunistically any tradition that that works for that and so that's one side of thing the other the other way of thinking of it is to go from existing legal person and how we can make them slowly become more decentralized and more moving towards this vision we have of something that that would rely partly on on technical infrastructure the beginning of the the use of the digital as an infrastructure was during the Berlin Airlift where most of the organization and logistic was just using the first semi automated systems to clarify when the plane should leave what it has to bring and and all that my vision with that and the the purpose of this talk is to try to see how we can think in terms of not necessarily we want to build a fully decentralized system and then we have the problem because first we have to implement features and then we have to anchor it but also try to think the other way around that we have institutions that have some elements of digital first you had which point this digital infrastructure becomes an open global decentralized system so that's also some of the topic that we discussed last weekend I mentioned leads so it was called the computation of law and blockchain festival I thank very much all the participants that that's spend a weekend you shouldn't do that discussing about these topics partly we focused on four topics on this one was the conventional proof how you make that's when you sign a smart contract or a contract with somebody you're going to recognize both that what's happening on the blockchain is a proof for the existing legal system second was the legal recognition on on the arrows the third topics were software patents software software licenses and patents this is a really not really analyzed topic in the blockchain ecosystem where most project just jump on any license but they have there are consequences depending on which license on for instance later patents and the last part was about tokenization on financial instrument so if we look a bit closer at a particular type of legal entity which is close to the topic of the day financial institutions they have two additional purpose to to what we have mentioned before one is they are regulated as an entity itself meaning that the the entity globally has to respect to certain rules for instance only employee how it hires employees how employees can participate in the market because they they have additional information how different activity have to be separated for instance how much assets owned provided particular service and then you have regulation about specific services so that's again when we are talking about the security tokens or the tokenization of securities that's something to bear in mind there is a higher level that's also the relation on the organization itself in in the financial industry it gets to a point where it's the core of the regulation goes on looking at each sent entity and relating the entity most specifically for instance to become a bank you need to apply for lease license and and then become the license and then one of your main asset is to be and have this license and you don't want to lose it and you do a lot of the requirement of the regulation on purpose to keep that license in the end you are the one that actually implementing the regulation but in a biased way the the regulator doesn't decide how should we organize the information how it should be shared by it just decide that you should be the one as a as a bank responsible for how how it's going to be managed and just recently we finally have seen a movement of newcomers in in this kind of industry trying to apply and and participate in the market this is a example of n twenty six and showing the process it was for them as a twenty people company to to to finally being able to apply and and and an entry third market which is necessary if we want to have a healthy market in yen if we look a bit closer at the question of securities this is a simplified version of it but again the main point of it is like you have different participants each is responsible for a different thing in the ecosystem currently it doesn't rely so much on how its organized technically it relies more on on who is responsible for what so at the at the right of the scheme you are the issuer that's the one it's either a bank or the company directly that creates the the for instance shares of the company and that deposit it the central securities depository on the upper left you have the investor to investor doesn't does never control the shares himself there is a layer of custodian that other one are going to be managing the shares for him and when he is gonna buy a new share or sell the share it's gonna go through a platform and then it's going to be between the platform and and central securities depository along with the custodian are gonna manage all the what's called the post market in the settlement face to manage how just in the end the simple purpose is to make sure that the seller has the shares make sure that the buyer has the money and just switch the through the custodian who owns the new shares at the moment to ensure that the both work everybody has design in a smart contract trying to sell an asset has is quite familiar with with this idea and feels like it could be pretty simple the point is that currently it's not all relying on the technical aspect but it's relying on responsibilities of each player it's slowly changing and for instance in Europe we have a movement over the last years where European Central Bank is trying to propose system that facilitates the organization of the market between the different participants so it's been the case for payment it's been the case for securities it doesn't change so much to the searcher of the market you just provide digital infrastructure that facilitate the circulation of information and to make sure for each stakeholder as the money has been moved and the share has been moved at the right time in France there has been recently a change in law on on opening the the utilization of a blockchain for managing shares so it's been in first in 2016 and then in 2017 that they opened the possibility to use a blockchain form first mini bonds so small Treasury Treasury bonds and in 2017 it's been four shares of companies and finally last December on December 24th we have further we finally had a decree that allowed and that explicitly the rules about these use of a blockchain the thing is if you look at it this french decree it's really still like the really beginning of the bridge the just the idea is that you still have somebody that's managing for you your your your account of shares and knowing how much shares you have and for the issue but they might use the blockchain for just managing this listing so also you need to identify the person that are going to be using this shelf because they are all nominative so you need to know who owns which chair in the end the the what we can conclude from that is is that as I heard this morning that we're discussing like how the regulator is slowly hearing about about this kind of technology I feel like for instance in France the regulator is really aware of of the possibility of these technologies and is opening already a first step but the prime is not the technology the problem is how it's going to the rest of the market infrastructure change once we we had those small steps because we can each bit of the infrastructure visualize it or use the blockchain for some organization but what's how is going to be working all the workflow I was presenting before of the different players to make sure that that's the the share move accordingly most specifically that these are a few challenges on the Left it's a version of a bond marketplace I did during a hackathon so a first challenge to me is how commoditize is going to be the technology it's so easy to do now this kind of platform that's the the key challenge is not going to be there the key challenge is going to be how around you're going to be able to articulate with the different players so one of the key challenge for Wii glitters at the moment is finality we are really fine when you have a transaction you send it and in 20 minutes on Bitcoin or a few minutes on on Ethier you know that your your transaction went through it doesn't work for financial assets you can't have a movement of funds on one side and not be really sure that the share was moved on the other side otherwise you still have a description see between the two so that's a first problem how what is the finality of the blockchain second is interface with legacy systems this is really the scenario void nightmare to just imagine that everybody is going to reboot from scratch by using the e theorem blockchain and building all the services all the legacy system are not gonna go away so what's the roadmap for for helping those kind of players to articulate with with these systems second a third point is continuation plan that was discussed this morning already but so they are truly on that for instance the Frank decree on how you can use a blockchain all for managing the shares asked specifically the company to have a long term continuation plan that that says that they have to plan if in case you go bankrupt in case the the technical system doesn't not work what's gonna happen next I feel like we are in a technology at the moment that we don't even know in six months if a fork is not going to happen if the if an update is going to be implemented or not so there is no way the blockchain Tanglers are going to be used for this kind of players at least public blockchain as long as there is no better plan on what's the roadmap on this kind of project the fourth point is custody this is really common problem we have in this pace but there is no way most investors are going to be managing and handing keys they're going to be an intermediate layer of custodians haven't seen platforms that have been really designed around this like most platform I assume that they're gonna be about to be the platform and everybody is going to be participating on on on it's you that needs to be a thinking of like how we build an eco systems having the platform the market infrastructure but also some some player like the Stallions another kind of intermediate player we're gonna need is identification for being able to to reliably know who are the the player still it's a market as growing the many project working on it but so far there are a few for instance it's not so complicated to become certified digital signature company in Europe so you have a process and you able to certify that this digital signature is belonging to this person but so far I don't see much companies in in the ecosystem looking into in into that and then you have to market them and that's probably the most critical thing and everybody that has been working on security token over the past year I've realized that there is a lot of interest but not strong market demand yet because also the other relays are not there for instance one thing that this miss is having the infrastructure is not enough you need people we sell the the titles we need you need people who know the different kind of investor depending on the kind of bonds you're trying to sell and all this is currently missing up in the ecosystem and then you have also the market structure and something that struck me as a European during most description I had around sacred token is how much a design and conceptualize around the way the US market is shaped and the US regulation in particular for instance in Europe in general most financial title there is not such vision of securities there are different types of financial titles that are each defined by the law and and it's not necessary that is an allowed to create a new type of financial asset for instance in France it has been ruled that for icos there were apparently no no much restriction on making an IC o---- in France but what's what's missing is more the markets or around it like there is notice from demand and interest in the market and that explains how I SEOs in France have been doing poorly up for this kind of esoteric type of assets so that's my point in general and what I was trying to explain and hope I conveyed the idea is that we need to think not only in terms of like we have a nice tool and we are able to build a particular type of asset exchange it and then the market is going to follow but try to think the other way around try to think how we work with existing institution how we are we what can we bring and where exactly we're gonna bring some value by having more open system in the end my intuition and the topic I'm gonna work in the next year is like how much is it a question of like having this purely decentralized system how much is it a question of certain property of it that we really want like is the key having an open market for instance and being able for any player to join in the market which is a case on theorem like you can create a new app and participating in markets that are only filled in just a few hours of coding which is all the case interests on the market so is is that if that is the goal it's not the same necessarily the same thing as being willing to be building a platform that's fully censorship resistant for instance so that's one of the key question I feel should be addressed in in the next months and I will be working on it and happy to engage with you if you interested in the topic [Applause] any questions yes yeah so I don't have the answer I wish I had but that's to me the core question that needs to be addressed in the next couple of years is like it's obvious that increments have a lot of cash behind them have a lot of regulatory capture and and and so how can you change it if we were able to design a perfect system which we are far from having how we are both who to help it implements one thing is that most regulators have met so far are quite interested in new IDs and system and opening the market for instance in Europe the main mission of the European Commission is to open the markets to facilitate the the building also of this European level market integrate more the countries so there are players that our institution that are also allies in this kind of a vision but also the not sure the the necessary against different working of the of the custom there are players that might be Kurds and admah might be fighting of some sort of reform but yeah but even that has to be to be planned like it's not enough to just say oh we don't need them it's like how you manage slowly to help them switch to another market opportunity and all that so to me I like first we need to think of like what would be the good design of the market we want not just we have a little tool the nice asset like what's in my market design once we have that we might start thinking about like how we integrate in with different players but it's going to go along because you can't design a market without thinking about other players the you're saying about the increments but one part is the cash but also one part is also the user base they have the client and I have and so it would be absurd to not try to leverage existing position to to enhance this kind of market another question okay thank you [Applause]